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History
HHC was carved out into a new entity, as the assets did not fit GGPs goal
of becoming a Class A regional mall operator post emergence
History
Pershing has not yet sold its warrants back to the company
In Nov. 2010, David Weinreb and Grant Herlitz were hired as CEO &
President
Together they purchased 7yr warrants for $17M on 2.7M shares at $42.23
Warrants may not be sold or hedged in any way nor may the execs reduce
their net long exposure until Nov, 2016
Purchased for $2M 7yr warrants on 179k shares at $54.50 under same
terms as Weinreb & Herlitz (except date differences)
Unique Model
HHC has done something very different. When they are not the sole
developer of a project, they do the following:
Summerlin Apartments, LLC
On January 24, 2014, we entered into a joint venture with a national multi-family real estate
developer, The Calida Group (Calida), to construct, own and operate a 124-unit gated
luxury apartment development. We and our partner each own 50% of the venture, and
unanimous consent of the partners is required for all major decisions. This project represents
the first residential development in Summerlins 400-acre downtown. We will contribute a
5.5-acre parcel of land with an agreed value of $3.2 million in exchange for a 50%
interest in the venture when construction financing closes. Our partner will contribute
cash for their 50% interest, act as the development manager, fund all pre-development
activities, obtain construction financing and provide any guarantees required by the
lender. Upon a sale of the property, we are entitled to our 50% share of proceeds and 100%
of the proceeds in excess of an amount determined by applying a 7.0% capitalization rate to
net operating income (NOI). The venture is expected to begin construction in the fourth
quarter of 2014 with the first units available for rent by the fourth quarter of 2015.
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Currently vastly underutilized with a series of low-rise retail, office and parking
structures. Its 1.2M sqft produces ~$24M NOI
Entitled to build ~4,000 residential units and 1.9M sqft of retail and office space
(9.3M sqft total)
Tower 1 (Ala Moana) went on sale and sold out 206 units in 23 hours ($1,170
sqft) with residents camping out at the sales center. Facebook CEO
Zuckerberg is rumored to be a buyer of several units.
Towers 2 (Waiea) and 3 (Anaha) are 75% sold out (493 total units)
Waiea construction began 11/2014 and Towers 4 and 5 have been approved
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Houston
In 2014 HHC bought ~1,800 acres just north of The Woodlands for
$67M with plans for > 4,600 residential lots & 161 acres commercial
(Hendricks Land). Even if we assume a 30% discount on lot price vs
The Woodlands, the purchase still represents a min. $600M revenue
opportunity only on residential lots assuming no price increases and
ignoring all commercial development
HHC is also building Embassy Suites and Westin hotels which it will
operate. There is a luxury tower being built next to the Westin
There are still 2,000 lots to sell (approx. 3 yrs worth) and lot prices
increased 19% in The Woodlands (30% in Bridgeland) in 2014
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Grand Parkway
The Grand Parkway will open the entire area around Bridgeland
to development and grant easy access to The Woodlands from
the West 45 miles to Bridgeland
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Grand Parkway
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Oil Risk?
Differences Between
1980s and Today
From 1979 to 1981 Volker raised the Fed funds rate from 11.2% to 20.5%,
which caused a national recession in 81-82. Today the Fed funds rate is
.1% and a recession is nowhere on horizon
In 1985 oil and gas exploration was 21% of Houstons economy; it is 11%
today
From pre- to post-recession (06- 11) the median home price rose
from $149,100 vs $153,900
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2008 vs 2014-15
In 2008 annualized GDP fell -8.2% and -5.4% in Q3/Q4. Today GDP is rising
~3%
From 2007-09 7.5 million Americans lost their jobs. In 2014 2.2 million
obtained jobs
During the great recession US home prices fell ~25%. In 2014 they rose
5.6% and are forecast to rise another 4%-5% in 2015
Despite hitting record high prices in Dec 2014, the median home price in
Houston is still 9% below the US average & 30-60% below other large metro
areas (Miami, Boston, LA, San Francisco). This affordability is driving a
steady stream of young and educated new residents to the area
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Even the most pessimistic projections call for only 40k energy related job
losses in 2015, equal to only 1.3% of the ~3M people employed in Houston
Metro (4.5% unemployment rate vs 5.5% US)
Despite those losses Houston is still expected to add ~50k net jobs in 2015
and 125k new residents. These people will be looking for housing in an
severely undersupplied market
Houston is now home to the worlds largest medical center and the #1
export port in the US. Health and Education have been leading the area in
employment gains the last decade (~2x oil and gas sector)
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Conclusion
The Houston housing market will not suffer material declines due to the oil
price fall
However, oil and gas are still significant contributors to the area. Houstons
growth rate may be cut in half in 2015
Even at these levels, Houston's GDP will grow more than NYC, Chicago,
LA and Washington DC and it has a much lower current housing inventory
than all of them
Further, HHC has only 2,000 lots left to sell in the Woodlands (3yrs) and
Bridgeland is centered in the fastest growing county in Houston
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While the fall in oil prices will slow the rate of home price appreciation in
the Houston Metro area (10.6% in 2014), given the lack of available lots
and large influx of workers and residents to the area in 2015, I think
HHC sees a minor if any impact to its two MPCs
Should oil prices settle significantly <$40 for a prolonged period of time
(1yr), this thesis would have to be revisited
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Redeveloping Pier 17
Proposed Plan
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Marina
Food market
Acquired 85 S. Street
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Summerlin
Downtown Summerlin
124-unit luxury condo tower being built along with 200k sqft office
tower
Red Rock Casino and Resort sits next to Downtown Summerlin and
sees >1M visitors per year
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Other Assets
Columbia, MD
HHC is redeveloping and adding ~13M sqft
of office, retail, multi-family
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Landmark Mall
Current state: Dead Mall
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Hotel Properties
Coming Online
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Residential Properties
Coming Online in 2015
Office/Retail Coming
Online in 2015
Exxon I & II: ~650k sqft, ~$10.7M NOI (rises to $14.5M if Exxon exercises
option for 150k more sqft)
Tower #5 Hawaii
Columbia Parcels
Looking Forward
MPC land sales will get a ~$27M bump from Bridgeland sales closing in
Q4 (vs $3M in 2013) and builders playing catch up to demand in
Summerlin bringing new neighborhoods online (supply restricted sales in
2014)
Q1 2015 gets an additional boost from Columbia C&D (retail (100k sqft)
and residential (1,200units)), and Hughes Landing Retail opening
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The company will see a material rise in NOI from the current
$70M annually to a $200M-$250M run rate in 2016
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Valuation: MPC
Available acres for sale
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Operating Properties
South St Seaport
Woodlands Properties
Columbia Properties
Shops at Summerlin
Al Moana
Valuation
Land Sale/MPC:
$56
Operating properties:
$176
Other:
$15-$25
Value:
$247-257/share
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Model Excludes
Landmark Mall
redevelopment
Currently unannounced
future development
Share repurchases
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Q&A
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